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How to re-think your retirement savings for today’s economy

Tips for paying off your debt and saving for the future
How much do you actually need for retirement anyway?. File / Getty Images

Canadians should either start planning for a lower post-retirement income, or find a way to make their savings grow; that’s the latest advice from Carolyn Wilkins, senior deputy governor of the Bank of Canada.

READ MORE: Canadian families should plan for lower retirement income

In a speech to the Official Monetary and Financial Institutions Forum in London, England, Wilkins said Wednesday Canadians should change their investment strategies and risk-management practices to reflect lower rates of return.

“For households, this may mean saving more before retirement or planning for a lower post-retirement income,” she said. “It also means acknowledging a reduced capacity to grow out of existing debts. The faster we do this, the safer the financial system will be.”

Expect to work longer to save more

For Canadians who are already saving for retirement, this may serve as a warning to re-think your savings. And financial experts suggest this may also include coming to terms with the fact that you may have to work longer than anticipated.

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“While we all want to retire ‘early,’ as long as our health keeps up, this is often a viable solution for many people,” said financial expert Preet Banerjee.

“Every major milestone is occurring later in life: paying off student debt, buying a first home, marriage, kids, etc. The reality is that retirement will likely need to be pushed back as well.”

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Now this doesn’t mean you have to keep your nine to five, 40-hour a week gig well into your 60s – instead, it might mean transitioning into part-time work.

WATCH: Canadians approaching retirement have inadequate savings

Not enough savings for retirement
Not enough savings for retirement

Plan to save more and spend less

Anyone who has discussed retirement planning has likely heard about the “70 per cent rule” – the assumption that you will need 70 per cent of your working income when you reach retirement.

But some experts argue the logic behind this rule is flawed.

“The more accurate way of determining how much you’re going to need to save for retirement is to focus on your expenses,” said certified professional accountant David Trahair.

“Focus on your current spending and then and only then can you make a projection as to approximately how much you are going to be spending each year in retirement.”

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READ MORE: Want to retire at 65? Here’s how much you need to save

Experts recommend drawing up a rough idea of how much money you will need for each year of your retirement. Make sure to consider things like whether you will work part time, whether you plan to travel often, or if you plan to downsize your home, for example.

Then begin building a budget for how much you have to save. Most of the major banks, and the Government of Canada, offer “retirement calculators” to help you figure a rough total.

The two main building blocks for retirement are a maximum of $13,000 a year from the Canada Pension Plan (CPP) and $7,000 from the Old Age Security (OAS) benefit. Of course, that’s if you’re lucky enough to have a company pension plan and have managed to put some money into a Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA).

Then, re-evaluate how that budget fits into your current lifestyle.

Don’t jump into high risk investments without knowing the risks

While some people might consider jumping into investments with high potential rates of return – like switching from big blue chip company stocks to high risk, small growth companies – those investments come with much higher risk.

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“Don’t go out and start adding more risky investments to your portfolio if you’re not tracking to the retirement you want – you have to invest the time to learn about investing,” Banerjee said.

“Otherwise, it’s possible that the pursuit of a higher returning strategy leads to lower returns, if you bail out of your new investment strategy at the wrong time out of fear.”

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– With files from Andrew Russell and The Canadian Press